The Central Government has notified a special mechanism for payment of central GST on operation and maintenance services supplied by concessionaires under the Toll-Operate-Transfer (TOT) model. Under the notification, central tax will be payable on the amount charged or debited from the designated escrow account towards operation and maintenance expenses, in the tax period in which the charge or debit occurs.
The Ministry of Finance, Department of Revenue, issued Notification No. 10/2026-Central Tax (Rate), dated October 27, 2026, on the recommendations of the GST Council. The notification takes effect on November 1, 2026.
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Tax Payment Linked to Escrow Account Entries
The notification covers concessionaires who supply operation and maintenance services to a concessioning authority during the concession period.
For these services, the notified mechanism links central tax payment to the amount charged or debited from the escrow account maintained in accordance with the concession agreement. The relevant amount must relate to operation and maintenance expenses incurred by the concessionaire.
The notification also specifies the period in which tax is payable: the tax period in which the expenditure is charged or debited from the escrow account.
Accordingly, the escrow account entries assume significance both for identifying the amount on which central tax must be paid and for determining the relevant tax period.
Which Concession Agreements Are Covered?
The notification specifically defines a “concession agreement” as an agreement under the Toll-Operate-Transfer model between a concessionaire and a concessioning authority.
Under the defined arrangement, the concessionaire receives exclusive rights to demand, collect and appropriate toll in respect of a road or highway. In return, the concessionaire is required to operate and maintain that road or highway throughout the concession period.
A further condition is that the concessionaire must pay the concession fee upfront.
The notification’s scope is therefore tied to agreements satisfying these specified features. Its wording does not extend the mechanism generally to every road construction, toll collection or highway maintenance contract.
Who Is a Concessioning Authority?
The notification defines “concessioning authority” to include the Central Government, a State Government, a Union territory, a local authority, a Governmental Authority or a Government Entity that enters into the concession agreement.
The mechanism consequently covers qualifying TOT arrangements entered into with any of these specified authorities or entities.
Practical Effect for Concessionaires
For covered concessionaires, the notification makes the recording of operation and maintenance expenditure in the contractual escrow account central to GST compliance.
For example, where qualifying operation and maintenance expenditure is debited from the escrow account during November 2026, the notification requires central tax on that amount to be paid for the tax period in which the November debit occurs.
Concessionaires will therefore need to reconcile the relevant escrow account entries with their operation and maintenance expense records and GST reporting. The amount and timing of each qualifying charge or debit will be material to applying the notified mechanism.
Notification Does Not Prescribe a New Tax Rate
The notification has been issued under Section 148 of the Central Goods and Services Tax Act, 2017, and identifies the class of registered persons to whom this special tax payment mechanism applies.
It does not specify a new GST percentage, grant an exemption or prescribe an input tax credit restriction. Its operative provision concerns payment of central tax on the specified operation and maintenance services by reference to qualifying escrow account charges or debits.
The upfront concession fee and the concessionaire’s right to collect toll appear in the definition of the covered agreement. The operative tax payment provision addresses operation and maintenance services supplied to the concessioning authority.
Effective From November 1, 2026
The special mechanism will come into force on November 1, 2026. Covered concessionaires should review their concession agreements and escrow accounting arrangements to identify the expenditure falling within its scope.
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